Choosing a Deductible That's Right for You

One of the most common questions I get is “Travis what deductible should I choose for my home and auto insurance?”.

I suggest starting at $500 and then looking at the next higher and lower options. Next, apply my “financial sense test” in the example below.

(good deductible change example)

My Homeowners Insurance premium is $1500 per year with $500 deductible. If I increase my deductible to $1000.00, the new homeowners premium is $1250 per year. Then apply this logic.

If I can make up the difference between the two deductibles in less than five years, then it's worth going with the higher deductible. If I can't make up the money in less than five years, then it's not worth going with the higher deductible.

$500.00 deductible increase divided by $250.00 savings = two years to make up the difference. In this situation, it's well worth making the change to the higher deductible

(poor deductible change example)

My Homeowners insurance is $1500 per year with a $1000.00 deductible and if I change the deductible to $2500 its $1250 per year. The math in this situation doesn’t justify going with the higher deductible option.

Cost $1500-$1450 = $50

Deductible - $2500 - $1500 = $1000 deductible difference

$1000 deductbible increase divided by $50 savings = 20 years to make up the difference

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